INHERITANCE TAX TO BE ABOLISHED?

NOT IN YOUR LIFETIME!

There has been a heated debate in recent weeks between the politicians of various parties as to whether Inheritance Tax should be abolished. Despite calls in the press by former Labour Transport Secretary, Stephen Byers, for Inheritance Tax to be abolished, we can safely say that that will not happen in your lifetime. Stephen Byers described Inheritance Tax as "a penalty on hard work, thrift and enterprise" and yet whilst many politicians agree, the response to his calls has been a fairly clear rejection of the idea of abolition of Inheritance Tax by all of the major political parties.

Realistically, however, we can only expect the problem to get worse. According to some commentators, the value of somewhere around one third of all houses in the UK will be above the nil rate band for Inheritance Tax by 2015 (currently the first £285,000 of a person’s estate is taxed at 0%). Recent increases in the nil rate band have done very little to redress the imbalance between the increase in house prices and the increase in the nil rate band and any redress in the balance that has occurred will be wiped out with the next round of house price inflation. Like it or not Journal readers will increasingly come across Inheritance Tax first hand in the years to come.

Moreover, as we described in a previous article, the government has now passed into law a vast raft of complex legislation in the 2006 Finance Act laughingly described by it as the "realignment of the tax treatment of trusts". Without getting into the tedious technicalities of this legislation (that is our job) it means essentially that all sorts of Inheritance Tax planning that was done through trusts will now face specific, additional tax charges that were reserved previously only for a particular type of trust, called a discretionary trust. What makes the use of trusts different to other tax avoidance devices, however, is the fact that in a lot of cases the tax planning was incidental to the real objective of setting up the trust, such as protecting minor or wayward children on the death of their parents. As such the new legislation will upset the well-planned arrangements of generations of families. The new law has the potential to upset existing arrangements as well as proposed new trust arrangements and can take effect inadvertently on a change in circumstances to the beneficiaries of a trust, such as on the death of a life tenant of a trust. Consequently, we are advising any clients with trusts to take advice from a suitably qualified expert. The same advice applies in relation to our clients’ wills that contain trusts as many wills create trusts that take effect on death and which may be affected by the new legislation.

Despite the attempts of the current government to make life more difficult for all of us and land us with an ever increasing tax bill, we are urging our clients not to despair. Inheritance Tax is still a tax that can be largely avoided and substantially reduced with careful planning and expert advice and of course, properly drawn up Wills in place. At Sandersons we pride ourselves on being able to advise our clients on all aspects of tax, including Inheritance Tax on all manner and size of estate, whether the estate is in the UK or abroad. We have access to the Country’s leading tax barristers should the need arise and many years experience of solving our clients’ tax problems. We will always be friendly and approachable.

Should you wish to speak to us about your Inheritance Tax or other tax problem, in the first instance please would you contact:

Geraldine Martin

Sandersons Solicitors

The Hall, Lairgate,

Beverley HU17 8HL.

Tel: 01482 324662

Fax: 01482 860118

Email: gmartin@sandersonssolicitors.co.uk

Source:  The Journal, September 2006